Lipper's Glow: Review of the European ETF market

The promoters of ETFs in Europe enjoyed net inflows for May. Despite these, the assets under management in the European ETF industry decreased due to the negative performance of the underlying markets. In more detail, the assets under management in the European ETF industry decreased from €746.7 bn as of April 30, 2019, to €721.6 bn at the end of May. The decrease of €25.1 bn for May was driven by the performance of the underlying markets (-€27.4 bn), while net sales contributed inflows of €2.3 bn to assets under management in the European ETF segment.

Graph 1: Market Share, Assets Under Management in the European ETF Segment by Asset Type, May 31, 2019

Source: Lipper from Refinitiv

Fund Flows by Asset TypeThe level of estimated net inflows into ETFs stood below average for May. In more detail, the net inflows in the European ETF industry for May (+€2.3 bn) were below the monthly rolling 12-month average (+€4.4 bn). The flows into ETFs were a sign that investors had returned to the markets despite an increased volatility in the stock markets globally. That said, it was surprising bond ETFs were again the asset type with the highest net inflows (+€1.0 bn), followed by equity ETFs (+€0.8 bn), alternative UCITS ETFs (+€0.5 bn), mixed-asset ETFs (+€0.02 bn), and commodity ETFs (+€0.001 bn). With regard to market conditions, it was also surprising that money market ETFs (-€0.04 bn) faced the highest outflows in the European ETF segment, bettered somewhat by "other" ETFs (-€0.04 bn). This flow pattern drove the overall net flows to +€33.2 bn for 2019.

Graph 2: Estimated Net Sales, May 2019 (€m)

Source: Lipper from Refinitiv

Assets Under Management by Lipper Global ClassificationsWith regard to the Lipper global classifications, the European ETF market was split into 175 different peer groups. The increase in classifications was caused by the launch of an updated Lipper global classification scheme on May 21, 2019. The highest assets under management at the end of May were held by funds classified as Equity US (€130.9 bn), followed by Equity Global (€69.7 bn), Equity Eurozone (€46.8 bn), Equity Emerging Markets Global (€38.4 bn), and Equity Europe (€37.8 bn). These five peer groups accounted for 44.84% of the overall assets under management in the European ETF segment, while the 10-top classifications by assets under management accounted for 58.11%. Overall, 17 of the 175 peer groups each accounted for more than 1% of assets under management. In total, these 17 peer groups accounted for €492.8 bn, or 68.30%, of the overall assets under management. In addition, it was noteworthy that the rankings of the largest peer groups were quite stable, indicating European investors use the funds from these peer groups as core holdings and not just as so-called satellites that are bought and sold frequently to implement asset allocation views in investor portfolios. These numbers showed assets under management in the European ETF industry continued to be highly concentrated.

The peer groups on the other side of the table showed some funds in the European ETF market are quite low in assets and risk being closed in the near future. They are obviously lacking investor interest and might, therefore, not be profitable for their respective fund promoters (Please read our report: "Is there a consolidation ahead in the European ETF industry?" for more details on this topic).

Fund Flows by Lipper Global ClassificationsWith regard to the overall sales for May, it was surprising equity funds (+€5.3 bn) dominated the table of the 10 best-selling peer groups by net flows, as well as by the peer group count. Accordingly, the best-selling Lipper global classification for May was Equity US (+€1.7 bn), followed by Equity Saudi Arabia (+€1.6 bn) and Equity Japan (+€0.9 bn).

The net inflows of the 10 best-selling Lipper classifications equalled 334.34% of the overall net inflows. These numbers showed the European ETF segment is also highly concentrated with regard to fund flows by sector. Generally speaking, one would expect the flows into ETFs to be concentrated since investors often use ETFs to implement their market views and short-term asset allocation decisions.

These products are made and, therefore, are easy to use, for these purposes.

On the other side of the table, the 10 peer groups with the highest net outflows for May accounted for €6.9 bn of outflows. It is remarkable that one of the investor favorites for the last few months—Bond Emerging Markets in Local Currencies (-€1.4 bn)—faced the highest net outflows overall, bettered somewhat by Equity Emerging Markets Global (-€1.3 bn) and Equity Eurozone (-€0.8 bn).

Assets Under Management by PromotersA closer look at assets under management in the European ETF industry by promoters also showed high concentration, since only 20 of the 51 ETF promoters in Europe held assets at or above €1.0 bn. The largest ETF promoter in Europe—iShares (€333.8 bn)—accounted for 46.26% of the overall assets under management, far ahead of the number-two promoter—Xtrackers (€78.3 bn)—and the number-three promoter—Lyxor ETF (€60.2 bn). (To learn more about the concentration of the European ETF market at the promoter level, please read our report: Spotlight on the concentration at the promoter level in the European ETF industry).

The 10-top promoters accounted for 93.19% of the overall assets under management in the European ETF industry. This meant, in turn, the other 41 fund promoters registering at least one ETF for sale in Europe accounted for only 6.81% of the overall assets under management.

Fund Flows by PromotersSince the European ETF market is highly concentrated, it was not surprising that six of the 10 largest promoters by assets under management were among the 10-top selling ETF promoters for May. Invesco was the best-selling ETF promoter in Europe for May (+€1.9 bn), well ahead of Amundi ETF (+€1.0 bn) and UBS ETF (+€0.5 bn).

Graph 7: Ten Best-Selling ETF Promoters, May 2019 (€m)

Source: Lipper from Refinitiv

Since the flows of the 10-top promoters accounted for 210.83% of the overall estimated net flows into ETFs in Europe for May, it was clear that some of the 51 promoters (16) faced net outflows (-€2.7 bn in total) over the course of the month.

Assets Under Management by FundsThere were 2,836 instruments (primary funds and convenience share classes) listed as ETFs in the Lipper database at the end of May. With regard to the overall market pattern, it was not surprising the assets under management at the ETF level were also highly concentrated. Only 160 of the 2,836 instruments held assets above €1.0 bn each. These products accounted for €431.8 bn, or 59.84%, of the overall assets in the European ETF industry. The 10 largest ETFs in Europe accounted for €118.1 bn, or 16.37%, of the overall assets under management. (Please read our study: Is the European ETF industry dominated by only a few funds? to learn more about the concentration at the single-fund level in the European ETF industry).

Graph 8: Ten Largest ETFs by Assets Under Management, May 31, 2019 (€m)

Source: Lipper from Refinitiv

ETF Flows by FundsA total of 906 of the 2,836 instruments analyzed in this report showed net inflows of more than €10,000 each for May, accounting for €20.2 bn, or 891.81%, of the overall net flows. This meant the other 1,930 instruments faced no flows or net outflows for the month (By looking at this statistic, one needs to bear in mind that some of these instruments are convenience share classes that do not report assets under management. This means Lipper can't calculate fund flows for these ETFs). In more detail, only 38 of the 906 ETFs posting net inflows enjoyed inflows of more than €100 m during May, for a total of €8.6 bn. The best-selling ETF for May, Invesco MSCI Saudi Arabia UCITS ETF, accounted for net inflows of €0.8 bn, or 36.52%, of the overall net inflows. It was followed by iShares MSCI Saudi Arabia Capped UCITS ETF USD Acc (+€0.7 bn) and UBS ETF MSCI Japan UCITS ETF (JPY) A-acc (+€0.6 bn).

Graph 9: Ten Best-Selling ETFs, May 2019 (€m)

Source: Lipper from Refinitiv

The flow pattern at the fund level indicated there was a lot of turnover and rotation during May, but it also showed the concentration of the European ETF industry even better than the statistics at the promoter or classification level. Given its size, it was surprising that only two of the 10 best-selling funds for May were promoted by iShares. This accounted for total net inflows of €1.1 bn, or 50.62%, of the net inflows into the European ETF segment.